Balancing Social, Environmental, and Financial Concerns

It is without a doubt that sustainability has moved up the business agenda in the last 12 months.

Despite the unremittingly gloomy economic landscape, the question of how today’s leaders balance social and environmental concerns with financial ones—what is known as “impact investing”—was a key debate at Davos this year, and it took center stage during His Highness the Aga Khan’s speech at the ULI Europe leadership dinner in Paris in February.

Sustainability and the property industry have not always been easy companions. The Aga Khan’s speech reflected on real estate’s notable absence from the field of impact investing to date—an industry that is estimated to be worth $1 trillion over the next decade. But as a long-term game by nature, sustainability was a business issue that has historically found it tough to compete; during the mid-2000s it lost out to strategies that reaped quicker, more tangible rewards for the bottom line, and during the early days of the downturn it faced a different kind of competition as investors focused cash on priority areas.

But at pan-European operator ECE Projektmanagement (ECE), green thinking is nothing new; the firm’s long-term commitment to sustainability both within the company and to the industry is an attitude that has won CEO Alexander Otto and the firm’s developments many an industry accolade. The most recent of these is ULI Germany’s Leadership Award 2011, presented to future-oriented, responsibility-minded entrepreneurs. In November, Otto became its seventh recipient, partly because of his “outstanding efforts” in the field.

One glance at the firm’s portfolio—which covers 16 European countries in the office as well as the retail sector—reveals why.

Green electricity—power that is derived from sources that do not make an impact on the environment—is now used by most of ECE’s more than 140 shopping centers, allowing the firm to meet almost 70 percent of its power requirements by certified green power. Also, energy-efficient illuminants have enabled ECE to cut energy consumption by 20 percent. Its Ernest-August-Galerie in Hannover—gold certified by the German Sustainable Building Council—contains no electric mall air-conditioning, saving 35 tons (31.7 metric tons) of carbon dioxide a year, according to the firm’s estimation.

So, as many in the industry begin to fathom how to devise investment strategies that do well by doing good in a social and environmental context, it’s a business opportunity ECE has long embraced—by employing “hands-on environmental protection in all phases of its projects,” as Otto terms it.

The firm’s knowledge of and experience with the subject—which has already been translated into books and manuals—have won it a place at the table with the Building Research Establishment Institute on the development of a European environmental certificate for shopping centers.

Otto, who has been at the helm of the shopping center specialist firm since 2000, believes its long-established approach to sustainable development has given its centers not only long-term environmental sustainability, but also financial strength that has helped it to “master” the crisis, as he puts it.

“We have always focused on development, continual sustainable development, and undertaking projects that will be successful in the long term. We have always looked at things that way, believing that we can only achieve long-term business success if we attach importance to ecological, social, and economic concerns.”

It is a focus that has gained ECE trust in the investment community, believes Otto, former chairman of ULI Europe. Last summer, he launched the firm’s first pan-European real estate fund focusing on the acquisition of existing shopping centers in Europe and raised €740 million (US$979.6 million) from sovereign wealth funds, pension funds, and insurance companies. In a tough era for new fundraising, that is no small achievement.

Otto attributes the successful raising of equity to the firm’s ability to adopt a business-as-usual approach over the last few years, unlike many competitors that have found developments difficult to advance. ECE currently has 16 centers under construction or in advanced planning stages, and in 2011 continued to grow its business into new areas, taking on management of its tenth center in Turkey and its sixth center in Poland in the last few months alone.

Considering this recent success, it should come as no surprise that Otto describes himself as “optimistic” about the future. But that optimism does not extend only to ECE, the company his father founded in 1965, and which Otto subsequently developed into one of the leading shopping center operators in Europe.

Rather, Otto says he is encouraged by the change in tone he has sensed in the industry lately—something that was discernible to anyone attending the Urban Land Institute’s recent European conference. The unstable economic backdrop, he argues, has focused minds on how to create long-term businesses and projects.

“This industry is moving away from financial gimmicks, where there was too much of a focus on numbers and how to maximize returns,” Otto says. “Investors are now considering the long term, and that is a very positive change [that] will be good for the industry.”

Otto answers with a definitive “yes” when asked whether technology and the internet will have a positive impact on shopping centers. (ECE uses flat screens in its shopping centers to provide news, entertainment, and product advertisement.) “We are embracing technology and the internet, M-commerce, and S-commerce.” He adds, however, that investors should be mindful that diversifying into new avenues still requires investment to be successful, just like any other business strategy.

“It is important for centers to be on social networking sites such as Facebook. But it is also important to have the capability to provide a fast response process [to customer feedback on the site] as well as someone managing it.

“The shopping center has different roles to play in this new era. It can be a place to buy goods or somewhere retailers can use as a showroom. I am quite optimistic because most people have access to the internet today, but we don’t see that [affecting] sales [in our centers].”

Arguing that internet shopping also has its own limitations, Otto foresees that providing retail services through the World Wide Web could become more costly as consumers make more demands. He believes this is one way in which shopping centers could offer a solution, providing “click and collect” services for customers in the store, rather than requiring them to wait at home for purchases to be delivered.

Despite its achievements in the environmental field, the firm continues to push forward with new initiatives that will further affect energy and carbon dioxide usage within its portfolio. Cool Down—which is researching innovative solutions to reduce heat emissions from store illumination—is one. It is also experimenting with shared-car projects and E-filling stations—one ECE scheme started in Berlin and Hamburg in 2009 allows drivers of electric cars to use battery-charging stations at several of its centers. “This is ECE’s way of playing its part in the expansion of public infrastructure for zero-emission electro-mobiles,” says Otto.

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